10.
Supply Chains
 Networks of manufacturers and service
providers that work together to move goods from
the raw material stage through to the end user
 Linked through physical, information, and
monetary flows

11.
3. Profitability and Survival
Organizations must carefully manage their
operations and supply chains to prosper, and
indeed, survive!

12.
Operations Management
THE PLANNING, SCHEDULING,
AND CONTROL OF THE
ACTIVITIES THAT TRANSFORM
INPUTS INTO FINISHED GOODS
AND SERVICES

13.
Operations Function
The collection of people, technology, and systems
within a company ...
… that has primary responsibility ...
… for providing the organization’s products
and/or services.

15.
Manufacturing
 Tangible product
 Key decisions driven by physical
characteristics of the product:




How is the product made?
How do we store it?
How do we move it?
Etc.

16.
A round watermelon needs lot of room in a refrigerator and the usually round
fruit often sits awkwardly on refrigerator shelves. Smart Japanese Farmers have
forced their watermelons to grow into a square-shape by inserting the melons
into square, tempered glass cases while the fruit is still growing on the vine.
“Cuboid Watermelon”

17.
Services
 Intangible “Product” or Service
 Key decisions:

How much customer involvement?

How much customization?

20.
Ancient Times
The first supply chain was the barter system
Traces of outsourcing was seen when Charles S. Rolls
became selling agent for cars made by F. Henry Royce
1904
The essence of SCM was understood with the first phase
characterized as an inventory ‘push’ era that focused
primarily on physical distribution of finished goods
1960-1975
Companies began migrating from an inventory push to
a customer pull channel
1975-1990
1980
Emergence of SCM
1985-
WalMart introduced the concept of Cross Docking
19961998-
Internet revolutionized the distribution system of
the business
Concept of e-commerce changed the definition of
business
Module 1:Supply Chain Management

24.
Supply Chain Management: The Magnitude
in the Traditional View
 Estimated that the grocery industry could save $30
billion (10% of operating cost) by using effective
logistics and supply chain strategies


A typical box of cereal spends 104 days from factory to sale
A typical car spends 15 days from factory to dealership
 Laura Ashley turns its inventory 10 times a year, five
times faster than 3 years ago

25.
Supply Chain Management:
The True Magnitude
 Compaq estimates it lost $.5 billion to $1 billion in
sales in 1995 because laptops were not available
when and where needed
 P&G estimates that it saved $65 million retail
customers by collaboration resulting in a better
match of supply and demand
 Boeing Aircraft, one of America’s leading capital
goods producers, was forced to announce writedowns of $2.6 billion in October 1997.
The reason? “Raw material shortages, internal and supplier
parts shortages…”. (Wall Street Journal, Oct. 23, 1997)

27.
Supply Chain: The Potential
 In 25 years, NDDB has enabled India to become the largest
producer of milk by implementing a logistics and supply
chain system that has eliminated several intermediaries,
thereby leading to a much higher remunerative price (yield)
for producers and lower price for consumers.
 As described in the FORBES magazine, the Dabbawalas of
Mumbai has achieved an extremely high level of reliability
and precision (SIX SIGMA level in QA) in delivering to
their customers the products earmarked for them.

28.
Supply Chain: The Potential
 Dell Computer has outperformed the competition
in terms of shareholder value growth over the
eight years period, 1988-1996, by over 3,000%
using
- Direct business model
- BTO (Build-to-Order) strategy.

29.
Supply Chain: The Potential
 In 10 years, Wal-Mart transformed itself by
changing its logistics system. It has the highest
sales per square foot, inventory turnover and
operating profit of any discount retailer.

31.
Just a significant evolution…
 Several hundred years ago, Napolean made the
remark, “An army marches on its stomach.”
 Unless the soldiers are fed, the army cannot move.
 Term “supply chain management” arose in the late
1980s and came into widespread use in 1990s.
 Prior – ‘Logistics’ and ‘operations management’

32.
Some Definitions
Supply Chain Management encompasses every
effort involved in producing and delivering a
final product or service, from the supplier’s
supplier to the customer’s customer.
Supply Chain Management includes managing
supply and demand, sourcing raw materials and
parts, manufacturing and assembly, warehousing
and inventory tracking, order entry and order
management, distribution across all channels,
and delivery to the customer.
The Supply Chain Council, U.S.A.

33.
Some More Definitions
Supply Chain Management deals with the management of
materials, information, and financial flows in a network
consisting of suppliers, manufacturers, distributors and
customers.
Stanford Supply Chain Forum
Logistics involves “managing the flow of items, information,
cash and ideas through the coordination of supply chain
processes and through the strategic addition of place,
period and pattern values.
MIT Center for Transportation and Logistics

34.
Some More Definitions
Supply Chain Management is primarily concerned with the efficient
integration of suppliers, factories, warehouses and stores so that
merchandise is produced and distributed in the right quantities, to the
right locations and at the right time, and so as to minimize total system
cost subject to satisfying service requirements.
Simchi-Levi
Call it distribution or logistics or supply chain management. By whatever
name, it is the sinuous, gritty, and cumbersome process by which
companies move, materials, parts, and products to customers.
Fortune (1994)

35.
What is a Supply Chain?
 All stages involved, directly or indirectly, in
fulfilling a customer request
 Includes manufacturers, suppliers, transporters,
warehouses, retailers, and customers
 Within each company, the supply chain includes all
functions involved in fulfilling a customer request
(product development, marketing, operations,
distribution, finance, customer service)

36.
A picture is better than 1000 words!
How many words would be better than 3 pictures?
- A supply chain consists of
Supplier
Manufacturer
Distributor
Retailer
Upstream
Customer
Downstream
- Aims to Match Supply and Demand,
profitably for products and services
SUPPLY SIDE
DEMAND SIDE
- Achieves
The right
Product
+
The right
Price
+ +
The right
The right
Store
Quantity
+
The right
Customer
+
The right
Time
=
Higher
Profits

38.
What is a Supply Chain?
 CUSTOMER is an integral part of any supply chain
 Includes movement of products from suppliers to
manufacturers to distributors, but also includes movement
of information, funds, and products in both directions
 Probably more accurate to use the term “supply network”
or “supply web”
 All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell computer)
1-40

41.
What is Supply Chain Management (SCM)?
43
Plan
Source
Make
Deliver
Buy
 A set of approaches used to efficiently integrate




Suppliers
Manufacturers
Warehouses
Distribution centers
 So that the product is produced and distributed



In the right quantities
To the right locations
And at the right time
 System-wide costs are minimized and
 Service level requirements are satisfied

50.
The Objective of a Supply Chain
 Maximize overall value created
 Supply chain value: difference between what the
final product is worth to the customer and the effort
the supply chain expends in filling the customer’s
request
 Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply
chain)

51.
The Objective of a Supply Chain
 Example: Dell receives 30000/- from a customer for a




computer (revenue)
Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
Difference between 30000/- and the sum of all of these
costs is the supply chain profit
Supply chain profitability is total profit to be shared across
all stages of the supply chain
Supply chain success should be measured by total supply
chain profitability, not profits at an individual stage
1-53

52.
The Objective of a Supply Chain
 Sources of supply chain revenue: the customer
 Sources of supply chain cost: flows of information,
products, or funds between stages of the supply
chain
 Supply chain management is the
management of flows between and among
supply chain stages to maximize total
supply chain profitability

53.
Customer could be an internal
customer or an external customer
Module 1:Supply Chain Management

54.
Process View of a Supply Chain
 Cycle view: processes in a supply chain are divided
into a series of cycles, each performed at the
interfaces between two successive supply chain
stages
 Push/pull view: processes in a supply chain are
divided into two categories depending on whether
they are executed in response to a customer order
(pull) or in anticipation of a customer order (push)

57.
Cycle View of a Supply Chain
 Each cycle occurs at the interface between two





successive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
Cycle view clearly defines processes involved and the
owners of each process. Specifies the roles and
responsibilities of each member and the desired
outcome of each process.

58.
Push/Pull View of
Supply Chain Processes
 Supply chain processes fall into one of two categories
depending on the timing of their execution relative to
customer demand
 Pull: execution is initiated in response to a customer
order (reactive)
 Push: execution is initiated in anticipation of
customer orders (speculative)
 Push/pull boundary separates push processes from
pull processes

60.
Push View of SCM
A push-based SCM takes longer to react to the
changing market place
In a push-based supply chain, production decisions
are usually based on long-term forecasts
In push-based strategies, SCM experience
increased transportation costs, high inventory
Pull View of SCM
levels and high manufacturing costs
In a pull-based supply chain, manufacturing is demand driven
so that it is coordinated with actual external customer
demand rather than a forecast
Lead-time reduction occurs as the variabilities
are better monitored in pull-based SCM
Pull-based systems are often difficult to implement when lead times
are so long that it is impractical to react to demand information
Module 1:Supply Chain Management

71.
Supply Chain Strategy or Design
 Decisions about the structure of the supply chain and
what processes each stage will perform
 Strategic supply chain decisions
 Locations and capacities of facilities
 Products to be made or stored at various locations
 Modes of transportation
 Information systems
 Supply chain design must support strategic objectives
 Supply chain design decisions are long-term and
expensive to reverse – must take into account market
uncertainty

73.
Supply Chain Operation
 Time horizon is weekly or daily
 Decisions regarding individual customer orders
 Supply chain configuration is fixed and operating
policies are determined
 Goal is to implement the operating policies as
effectively as possible
 Allocate orders to inventory or production, set
order due dates, generate pick lists at a
warehouse, allocate an order to a particular
shipment, set delivery schedules, place
replenishment orders
 Much less uncertainty (short time horizon)